Quick Answer

Yes. Foreign property owners must pay U.S. capital gains tax when they sell real estate located in the United States.

However, the tax is not automatically 15% — that is just FIRPTA withholding, not the final tax amount.

Many foreign sellers actually overpay tax at closing and later receive a refund from the IRS.

This is one of the most misunderstood parts of selling U.S. property as a non-resident.

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FIRPTA vs Capital Gains Tax (Very Important)

When a foreign owner sells U.S. property, two different things happen:

Item	What It Is
FIRPTA Withholding	Money withheld at closing (usually 15% of sale price)
Capital Gains Tax	Actual tax owed on profit
Refund	Difference between withholding and actual tax

Important: FIRPTA is not a tax — it is a prepayment of tax.

This means the IRS withholds money first, and then the seller calculates the actual tax later when filing a U.S. tax return.

👉 To understand withholding in detail, see our FIRPTA Withholding Calculator.

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Example: Foreign Seller Property Sale

Item	Amount
Purchase Price	$300,000
Sale Price	$500,000
Gain	$200,000
FIRPTA Withholding (15%)	$75,000
Capital Gains Tax	$30,000
Refund	$45,000

In this example, the seller overpaid $45,000 at closing and would receive that back after filing a U.S. tax return.

🧮 See your potential refund: Use our FIRPTA Refund Calculator to estimate your actual tax liability versus the 15% withholding.

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How Capital Gains Tax Is Calculated

Capital gain is calculated as:

Sale Price
− Selling Costs
− Adjusted Basis
= Capital Gain

Adjusted basis includes:

• Purchase price
• Improvements
• Minus depreciation (if rental property)

Note: If this was a rental property, your actual tax may also include depreciation recapture, which can be taxed up to 25%.

👉 Read our full guide: Depreciation Recapture Explained When Selling Rental Property

📉 Is it better to sell or keep renting? If you are moving out of the U.S., use our Rent vs Sell vs 1031 Calculator to see which path leaves you with more net worth after a few years.

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FIRPTA Withholding Rates (2026)

FIRPTA withholding depends on the situation:

Situation	FIRPTA Withholding
Buyer will live in property and price < $300k	0%
Buyer will live in property and price $300k–$1M	10%
All other cases	15%

Important residence rule:
The lower withholding rates only apply if the buyer signs an affidavit stating they intend to use the property as a primary residence for at least 50% of the time for the next two years.

If the buyer is an investor or rental owner, the 15% withholding applies even if the property price is below $300,000.

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Important: FIRPTA Is Based on Sale Price, Not Profit

This is where many foreign sellers get surprised.

Capital gains tax is based on profit, but FIRPTA withholding is based on sale price.

So even if the seller made little profit, the withholding could still be very large.

This is why many sellers file for a FIRPTA refund after closing.

👉 You can estimate your refund using the FIRPTA Refund Calculator.

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Can Foreign Sellers Reduce FIRPTA Withholding Before Closing?

Yes.

A seller can file IRS Form 8288-B before closing to request a withholding certificate and reduce the withholding amount.

This is common when:

• Profit is small
• Property sold at a loss
• Seller has large improvements
• Seller has depreciation recapture only
• Seller plans a 1031 exchange
• FIRPTA withholding would be much higher than actual tax

Important: This must be filed before closing.

👉 If you are planning a tax-deferred exchange, read: 1031 Exchange Timeline: 45-Day and 180-Day Rules

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Do Foreign Sellers Always Owe Tax?

Not always.

A foreign seller may owe little or no tax if:

• Property sold at a loss
• Large improvements increased basis
• Depreciation recapture only
• Capital gains tax lower than FIRPTA withheld
• Tax treaty benefits apply
• 1031 exchange used

Important:
If you sell at a net loss, you may still have 15% withheld at closing unless you obtain a Withholding Certificate (Form 8288-B) in advance.

Many sellers actually receive refunds after filing their U.S. tax return.

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Common Mistakes Foreign Sellers Make

Common mistakes include:

• Thinking FIRPTA is the final tax
• Not filing a U.S. tax return after the sale
• Not applying for FIRPTA withholding reduction
• Not tracking improvements and depreciation
• Not planning for depreciation recapture
• Not considering a 1031 exchange
• Not understanding that FIRPTA applies even if the seller lives outside the U.S.

Proper planning before selling can save thousands of dollars.

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Final Thoughts

Yes, foreign sellers do pay capital gains tax when selling U.S. property, but FIRPTA withholding is usually much higher than the actual tax owed.

Many foreign property owners:

• Have money withheld at closing
• File a U.S. tax return the next year
• Receive a refund from the IRS

Understanding FIRPTA, capital gains tax, depreciation recapture, and 1031 exchanges is very important before selling U.S. real estate.

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Related Calculators and Guides

Before selling your property, these tools may help:

• FIRPTA Withholding Calculator
• FIRPTA Refund Calculator
• Rent vs Sell vs 1031 Calculator
• Depreciation Recapture Explained
• 1031 Exchange Timeline: 45-Day and 180-Day Rules

These tools can help you estimate taxes, refunds, and your net proceeds before making a decision.

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